What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-01 · 123 added, 98 removed, 159 unchanged (58% of the section changed)

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Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

We are a clinical stage biotechnology company leading the field of redosable gene therapy for the treatment serious rare diseases.

We are a clinical stage biotechnology company leading the field of redosable gene delivery.

Using our patented platform that is based on engineered HSV-1, we create vectors that efficiently deliver therapeutic transgenes to cells of interest in multiple organ systems.

The cell’s own machinery then transcribes and translates the encoded effector to treat or prevent disease.

We formulate our vectors for non-invasive or minimally invasive routes of administration at a doctor’s office or potentially in the patient’s home.

Our goal is to develop easy to use, redosable gene therapies to dramatically improve the lives of patients living with rare diseases.

We formulate our vectors for non-invasive or minimally invasive routes of administration at a doctor’s office or potentially in the patient’s home by a healthcare professional.

Our goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare diseases and chronic conditions.

Our innovative technology platform is supported by in-house, commercial scale cGMP manufacturing capabilities.

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Pipeline Highlights:

• B-VEC is a topical gel containing our novel vector designed to deliver two copies of the COL7A1 transgene for the treatment of DEB, a serious rare skin disease caused by missing or mutated COL7.

The randomized, double-blind, placebo-controlled GEM-3 pivotal study is ongoing, with top line data anticipated in 4Q21.

Details of the pivotal study can be found at www.clinicaltrails.gov under NCT identifier NCT04491604.

Nothing included on these websites shall be deemed incorporated by reference into this Annual Report on Form 10-K.

• KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene for the treatment of TGM1-ARCI, a serious rare skin disorder caused by missing or mutated TGM1 protein.

• Vyjuvek is a topical gel containing our novel vector designed to deliver two copies of the COL7A1 transgene for the treatment of dystrophic epidermolysis bullosa ("dystrophic EB"), a serious rare skin disease caused by missing or mutated type VII collagen protein ("COL7").

Our randomized, double-blind, placebo-controlled GEM-3 pivotal study was designed to evaluate topical Vyjuvek as compared to placebo in dystrophic EB patients.

On November 29, 2021, we announced positive topline results from the GEM-3 study.

Details of the pivotal study can be found at www.clinicaltrials.gov under NCT identifier NCT04491604.

We expect to file a BLA with the FDA in 1H22, and an MAA with the EMA in 2H22.

During 2Q21, we began enrolling patients into an open label extension ("OLE") study, including patients who participated in the Phase 3 study, as well as new participants who meet all enrollment criteria.

Details of the OLE study can be found at www.clinicaltrials.gov under NCT identifier NCT04917874.

Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

• KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene for the treatment of TGM1-deficient autosomal recessive congenital ichthyosis ("TGM1-ARCI"), a serious rare skin disorder caused by missing or mutated TGM1 protein.

A randomized, placebo-controlled Phase 1/2 study is ongoing.

On July 1, 2021, we announced data from the fourth patient dosed in the trial, showing repeat topical KB105 dosing continued to be well tolerated with no adverse events or evidence of immune response.

Details of the Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier NCT04047732.

Nothing included on these websites shall be deemed incorporated by reference into this Annual Report on Form 10-K.

• KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length CFTR transgene for the treatment of cystic fibrosis, a serious rare lung disease caused by missing or mutated CFTR protein.

We expect to initiate clinical testing in 1H21.

Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

On September 29, 2021, we announced that the Bellberry Human Research Ethics Committee in Australia granted approval to conduct a Phase 1 clinical study of inhaled KB407 in patients with cystic fibrosis, and trial initiation is anticipated in 1H22.

More detailed data from the Good Laboratory Practice "GLP" toxicology and biodistribution study was presented at the virtual 2021 North American Cystic Fibrosis Conference that took place November 2-5, 2021.

We plan to submit an IND and initiate a Phase 1 trial in the U.S.

• KB104 is a topical gel formulation of our novel vector designed to deliver two copies of the SPINK5 transgene for the treatment of Netherton Syndrome, a debilitating autosomal recessive skin disorder caused by missing or mutated SPINK5 protein.

We expect to file an IND in 2H21.

We expect to initiate a Phase 1 clinical study in 2022.

• KB408 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the SERPINA1 transgene, that encodes for normal human alpha-1 antitrypsin protein, for the treatment of alpha-1 antitrypsin deficiency.

We presented preclinical pharmacology data for KB408 at the European Society of Gene & Cell Therapy Virtual Congress that was held October 19-22, 2021.

We have several other product candidates in various stages of preclinical development.

We are also leveraging the ability of our platform to deliver proteins of interest to cells in the skin in the context of aesthetic medicine via our wholly-owned subsidiary Jeune, Inc.

We are also leveraging the ability of our platform to deliver proteins of interest to cells in the skin in the context of aesthetic medicine via our wholly-owned subsidiary Jeune Aesthetics, Inc ("Jeune").

A Summary description of Jeune’s key product candidate and its status is as follows:

• KB301 is a solution for intradermal injection designed to deliver two copies of the COL3A1 transgene to address signs of aging or damaged skin caused by declining levels of, or damaged proteins within the extracellular matrix, including type III collagen.

A Phase 1 safety study is currently ongoing.

• KB301 is a solution formulation of our novel vector for intradermal injection designed to deliver two copies of the COL3A1 transgene to address signs of aging or damaged skin caused by declining levels of, or damaged proteins within the extracellular matrix, including type III collagen.

A Phase 1 study is currently ongoing.

We anticipate announcing top line data from the efficacy cohort in 1Q 2022.

Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT04540900.

Nothing included on these websites shall be deemed incorporated by reference into this Annual Report on Form 10-K

Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

Jeune has several other aesthetic medicine product candidates in various stages of preclinical development.

Business Highlights:

• On May 21, 2020, the Company completed a public offering of 2,275,000 shares of its common stock to the public at $55.00 per share.

Net proceeds to the Company from the offering were $117.2 million after deducting underwriting discounts and commissions of approximately $7.5 million, and other offering expenses payable by the Company of approximately $463 thousand.

• On December 31, 2020, the Company entered into a sales agreement (the "Sales Agreement") with Cowen and Company, LLC ("Cowen") with respect to an at-the-market equity offering program ("ATM Program"), under which Cowen will act as the Company's agent and/or principal and may issue and sell from time to time, during the term of the Sales Agreement, shares of its common stock, par value $0.0001 per share, having an aggregate offering price up to $150.0 million ("Placement Shares").

In 2021, 262,500 shares of common stock have been issued pursuant to the ATM Program for net proceeds of $16.9 million, resulting in a remaining $132.5 million available for issuance under the ATM Program.

• On January 29, 2021, the Company entered into a Purchase and Sale Agreement ("PSA") for ASTRA with Northfield related to the purchase option exercised by the Company on October 15, 2020 for a purchase price of $9.4 million.

The transaction is expected to close in early March 2021 subject to customary closing conditions.

• On February 1, 2021, the Company completed a public offering of 2,211,538 shares of its common stock, including 288,461 shares purchased by the underwriters, at $65.00 per share.

Net proceeds to the Company from the offering were $135.0 million after deducting underwriting discounts and commissions of approximately $8.6 million, and other estimated offering expenses payable by the Company of approximately $193 thousand.

In December 2019, COVID-19 was first reported in Wuhan, China and in March 2020, a global pandemic was declared by the World Health Organization.

In an effort to slow the spread of the virus, certain governments, including the Commonwealth of Pennsylvania where the Company’s primary offices, laboratory and manufacturing spaces are located, enacted stay-at-home orders, and sweeping restrictions to travel were initiated by corporations and governments.

Although these restrictions have been lifted in some areas, it is not known at this time whether they will be reestablished or the extent to which the Company will be impacted.

The degree of COVID-19’s effect on the Company’s clinical, operational and financial performance will depend on future developments, including additional protective measures that may be implemented by governmental authorities or the Company to protect its employees, or by investigators, caregivers or patients to minimize exposure, all of which are uncertain and difficult to predict.

While to date the impact of COVID-19 on our business and clinical trials has been minimal, we will continue to assess the potential impact of the COVID-19 pandemic on our business and operations, including our supply chain and preclinical and clinical trial activities.

For additional information regarding the impact of the coronavirus pandemic, please see "Risk Factor - Business interruptions resulting from the COVID-19 outbreak or similar public health crises could cause a disruption of the development efforts.of our product candidates and adversely impact our business."

• On January 29, 2021, the Company entered into a Purchase and Sale Agreement for ASTRA with Northfield related to the purchase option exercised by the Company on October 15, 2020 for a purchase price of $9.4 million.

The transaction closed on March 5, 2021.

• On February 1, 2021, the Company completed a public offering of 2,211,538 shares of its common stock, at $65.00 per share.

Net proceeds to the Company from the offering were $134.9 million after deducting underwriting discounts.

• On March 24, 2021, the Company announced the appointment of Dr.

Bhushan Hardas, M.D., MBA as President of Jeune.

• On May 3, 2021, the Company announced the appointment of Andy Orth to the position of Chief Commercial Officer of Krystal Biotech.

• On June 30, 2021, the Company entered into a Standard Form of Contract for Construction and the corresponding General Conditions of the Contract for Construction with Whiting-Turner, pursuant to which Whiting-Turner is constructing and managing the construction of ASTRA located in the Pittsburgh, Pennsylvania area.

The ASTRA facility is under construction and expected to be completed and validated in 2022.

• On September 15, 2021, we announced the appointment of Laurent Goux as the General Manager of Europe.

• On October 12, 2021, we announced a collaboration with GeneDx, Inc., a wholly-owned subsidiary of BioReference Laboratories, Inc., an OPKO Health company, to offer no-charge genetic testing for all types of Epidermolysis Bullosa (EB).

The goal of the program, called Krystal Decode DEB TM , is to help patients with the dystrophic form of this genetic condition, also known as dystrophic EB, get a definitive diagnosis sooner, with highly accurate results obtained with a blood or cheek swab sample.

• On December 3, 2021, the Company completed a public offering of 2,866,667 shares of its common stock, which includes 200,000 shares purchased by the underwriters, at $75.00 per share.

Net proceeds to the Company from the offering were $201.9 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

• On January 18, 2022, we announced that Jing Marantz, MD, PhD, MBA had resigned from the Board of Directors to accept the position as Chief Business Officer with the Company and E.

Rand Sutherland was appointed as a member of the Board of Directors to fill the vacancy.

The COVID-19 pandemic has prompted governments and businesses to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of businesses, and quarantines.

In an effort to slow the spread of the virus, The Commonwealth of Pennsylvania where the Company’s primary offices, laboratory and manufacturing spaces are located, enacted stay-at-home orders, and sweeping restrictions to travel were initiated by corporations and governments.

Although these restrictions have been lifted, it is not known at this time whether they will be reestablished or the extent to which the Company will be impacted.

The degree of the pandemic’s effect on the Company’s clinical, operational and financial performance will depend on future developments, including additional protective measures that may be implemented by governmental authorities or the Company to protect its employees, or by investigators, caregivers or patients to minimize exposure, all of which are uncertain and difficult to predict.

To date the impact of the pandemic on our business and clinical trials in the U.S.

has been minimal and the increased vaccination rates in the U.S.

are encouraging.

We will continue to assess the potential impact of the pandemic on our business and operations, including our supply chain and preclinical and clinical trial activities.

Outside of the U.S., we have experienced pandemic-related delays in clinical trial initiation in Australia, and we will continue to closely monitor this rapidly evolving situation.

For additional information regarding the impact of the coronavirus pandemic, please see "Risk Factor - Business interruptions resulting from the pandemic or similar public health crises could cause a disruption of the development efforts of our product candidates and adversely impact our business."

Financial Overview

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We expect our research and development expenses will increase as we continue the manufacturing of preclinical and clinical materials and manage the clinical trials of, and seek regulatory approval for, our product candidates and expand our product portfolio.

In the near term, we expect that our research and development expenses will increase as we continue our ongoing GEM-3 pivotal study for B-VEC, our Phase 1/2 clinical trial for KB105, our Phase 1 safety study for KB301, and incur preclinical expenses for our other product candidates.

Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of this clinical trial, and, as a result, the actual costs to complete this planned clinical trial may exceed the expected costs.

In the near term, we expect that our research and development expenses will increase as we continue our OLE study for Vyjuvek, our Phase 1/2 clinical trial for KB105, our Phase 1 safety and efficacy study for KB301, and incur preclinical expenses for our other product candidates.

Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of clinical trials, and, as a result, the actual costs to complete clinical trials may exceed the expected costs.

General and Administrative Expenses

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These increases will likely include increased costs for insurance, costs related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants, among other expenses.

Additionally, if and when we believe a regulatory approval of our first product candidate appears likely, we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations

Additionally, we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations.

ASTRA Capital Expenditures

On March 5, 2021, we closed on the purchase of the building that was constructed to house our second cGMP facility, ASTRA.

We are currently in the process of constructing the interior build-out of this facility and we have entered into a contract with Whiting-Turner who will manage the construction of ASTRA.

Further, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages.

These contracts typically call for the payment of fees for services or materials upon the achievement of certain milestones.

We expect to continue to incur significant capital expenditures related to ASTRA as we construct and validate this facility, which is expected to be completed in 2022.

Interest Income

Interest income consists primarily of income earned from our cash, cash equivalents and investments.

Interest Expense

Interest expense consists primarily of non-cash interest expense recognized to accrete the build to suit financial obligation to a balance that equaled the cash consideration that was paid upon the close of the purchase of ASTRA.

Critical Accounting Policies and Significant Judgments and Estimates

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Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses, current assets and other current liabilities.

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses, prepaid assets and other current liabilities.

This process involves reviewing open contracts and commitments, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.

The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met.

We make estimates of our accrued research and development expenses, current assets and other current liabilities as of each balance sheet date in our financial statements based on facts and circumstances known to us at that

Examples of estimated accrued research and development expenses, prepaid assets and other current liabilities include fees paid to contract manufacturers made in connection with the manufacturing of preclinical and clinical trials materials.

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Stock-Based Compensation

We have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation (" ASC 718"), to account for stock-based compensation for employees and ASC 718 and ASC 505, Equity (" ASC 505"), for non-employees for 2018.

We recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant.

Stock compensation related to non-employee awards is re-measured in 2018 at each reporting period until the awards are vested.

We have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation ( " ASC 718"), to account for stock-based compensation.

We recognize compensation costs related to stock options granted based on the estimated fair value of the awards on the date of grant.

Described below is the methodology we have utilized in measuring stock-based compensation expense.

ASC 718 requires all stock-based payments, including grants of stock options and restricted stock, to be recognized in the statements of operations based on their grant-date fair values.

Compensation expense is recognized on a straight-line basis based on the grant-date fair value over the associated service period of the award, which is generally the vesting term.

Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their measurement date.

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Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

Because we are a company with a limited operating history, we utilize data from a representative group of publicly traded companies to estimate expected stock price volatility.

We selected representative companies from the biopharmaceutical industry with characteristics similar to us.

We use the simplified method as prescribed by the SEC Staff Accounting Bulletin No.

Once the Company's own sufficient historical volatility data was obtained, the Company eliminated the use of a representative peer group and as of Q4 2021 the Company uses only its own historical volatility data in its estimate of expected volatility given that there is now sufficient amount of historical information regarding the volatility of its own stock price.

We use the simplified method to calculate the expected term as prescribed by the SEC Staff Accounting Bulletin No.

107, Share-Based Payment as we do not have sufficient historical stock option activity data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees.

For non-employee grants, we use an expected term equal to the remaining contractual term of the award in 2018.

We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention of paying cash dividends.

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Treasury yield curve in effect at the time of grant for instruments with a similar expected life.

Under ASC 718, we elected to estimate the level of forfeitures expected to occur and record stock-based compensation expense only for those awards that we ultimately expect will vest.

During the years ended December 31, 2020 and 2019, our estimated annual forfeiture rate was 14.74 % and 10.00 %, respectively.

We adopted FASB ASC Topic 842, Lease ("ASC 842") on January 1, 2019, with no restatement of prior periods or cumulative adjustment to retained earnings.

Upon adoption, the Company took advantage of the transition package of practical expedients permitted within ASC 842, which allowed the Company not to reassess previous accounting conclusions around whether arrangements were, or contained leases, as well as to carry forward both the historical classification of leases and the treatment of initial direct costs for existing leases.

We account for our lease agreements in accordance with FASB ASC Topic 842, Leases ("ASC 842").

As the Company's lease agreements do not provide an implicit rate and as the Company does not have external borrowings, we use an estimated incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments.

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Once the construction is complete, an assessment will be performed to determine whether the lease meets certain "sale-leaseback" criteria.

If the sale-leaseback criteria are determined to be met, the Company will remove the asset and related financial

obligation from the balance sheet and treat the building lease as either an operating or finance lease based on our assessment of the guidance.

If the sale-leaseback criteria are determined to be met, the Company will remove the asset and related financial obligation from the balance sheet and treat the building lease as either an operating or finance lease based on our assessment of the guidance.

If, upon completion of construction, the project does not meet the "sale-leaseback" criteria, the lease will be treated as a financing obligation and the Company will depreciate the asset over its estimated useful life for financial reporting purposes.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Results of Operations

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Interest and other income, net 197 832 2,993 (635) (2,161)

Interest expense (1,492) — — (1,492) —

Total interest and other income, net (1,295) 832 2,993 (2,127) (2,161)

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Research and development expenses increased $9.9 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Higher research and development expenses were due to increases in lab supplies of $142 thousand, payroll related expenses of approximately $2.0 million which is primarily driven by an increase in headcount to support overall growth and includes a $417 thousand increase in stock-based compensation, and other research and development expenses of $757 thousand, with a decrease in outsourcing research and development activities of $560 thousand.

Higher research and development expenses were due to increases in preclinical, clinical and pre-commercial manufacturing activities of $3.3 million, payroll related expenses of approximately $3.1 million which is primarily driven by an increase in personnel to support overall growth and includes a $2.4 million increase in stock-based compensation, an increase in outsourced research and development activities of $2.0 million, travel related expenses associated with our clinical trial sites of $187 thousand, and other research and development expenses of $1.3 million, primarily due to depreciation and rent.

Research and development expenses increased $2.3 million for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Higher research and development expenses were due to increases in professional services related to outsourced manufacturing, in-vivo and clinical studies of $2.3 million, payroll, employee benefits and stock-based compensation of $1.9 million due to an increase in headcount as we scaled up our research and development efforts for our 2 leading product candidates, B-VEC and KB105, lab supplies of $2.2 million, and other research and development expenses of $1.5 million.

Higher research and development expenses were due to increases in lab supplies of $142 thousand, payroll related expenses of approximately $2.0 million which is primarily driven by an increase in personnel to support overall growth and includes a $417 thousand increase in stock-based compensation, and other research and development expenses of $757 thousand, with a decrease in outsourcing research and development activities of $560 thousand.

General and Administrative Expenses

General and administrative expenses increased $25.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Higher general and administrative spending was due largely to increased payroll related expenses of approximately $4.0 million which is primarily driven by an increase in headcount to support overall growth and includes an approximate $1.6 million increase in stock-based compensation, market research related expenses of approximately $2.0 million, legal and professional fees of approximately $1.6 million, insurance expense of $693 thousand and other administrative expenses of $295 thousand.

Higher general and administrative spending was due largely to increased payroll related expenses of approximately $14.7 million which is primarily driven by an increase in personnel to support overall growth and includes an approximate $9.6 million increase in stock-based compensation, commercial preparedness expenses of approximately $3.8 million, legal and professional fees of approximately $3.7 million which is net of $2.1 million of insurance proceeds, software related costs of $1.0 million, medical affairs costs of $508 thousand, insurance costs of $427 thousand and other administrative expenses of 1.2 million.

General and administrative expenses increased $8.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Higher general and administrative spending was due largely to increases in legal and professional services of $184 thousand, payroll, employee benefits and stock-based compensation costs of $1.5 million, insurance expenses of $242 thousand, and other administrative costs of $434 thousand.

Interest and Other Income

Interest and other income for the year ended December 31, 2020 and 2019 was $832 thousand and $3.0 million, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments.

Other Income (Expense)

Interest and other income for the year ended December 31, 2021 and 2020 was $197 thousand and $832 thousand, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments.

This decrease was driven by a decline in market interest rates.

Interest and other income for the year ended December 31, 2019 and 2018 was $3.0 million and $1.0 million, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments.

This increase was primarily driven by an increase in our cash position in 2019 as compared to 2018.

Interest expense for the year ended December 31, 2021 and 2020 was $1.5 million and zero, respectively, and related to accretion of the financial obligation for the build to suit lease liability during the year ended December 31, 2021 to a balance that equaled the purchase consideration for ASTRA.

This decrease was driven by a decline in market rates.

Liquidity and Capital Resources

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At December 31, 2021, we had an accumulated deficit of $140.8 million.

With the net proceeds raised from our public and private securities offerings, including the public offering completed on May 21, 2020, the ATM Program and the public offering completed on February 1, 2021, the Company believes that its cash, cash equivalents and short-term investments will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Form 10-K.

With the net proceeds raised from its public and private securities offerings, including the public offerings of its common stock completed in February and December of 2021, the Company believes that its cash, cash equivalents and short-term investments will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Form 10-K.

As the Company continues to incur losses, a transition to profitability is dependent upon the successful development, approval and commercialization of our product candidates and the achievement of a level of revenues adequate to support the Company’s cost structure.

The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital.

Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our continued clinical studies of B-VEC, KB105, KB301 or our planned preclinical studies for our other product candidates, or our operations.

Further, we do not expect to generate any product revenues until 2022, at the earliest, assuming we receive marketing approval for B-VEC on the schedule we currently contemplate.

Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our continued clinical studies of Vyjuvek, KB105, KB301 or our planned preclinical studies for our other product candidates, or our operations.

Further, we do not expect to generate any product revenues until 2022, at the earliest, assuming we receive marketing approval for Vyjuvek on the schedule we currently contemplate.

While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties.

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As we seek to obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses as we prepare for product sales, marketing, manufacturing, and distribution.

Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercially launch B-VEC, KB105, KB301 or any other product candidate.

Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercially launch Vyjuvek, KB105, KB301 or any other product candidate.

Accordingly, to obtain marketing approval for and to commercialize this or any other product candidates, we may be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements or other sources.

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Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs for preclinical and clinical materials, third party clinical trial research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses and general overhead costs.

In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, manufacturing, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect.

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Our future funding requirements will depend on many factors, including, but not limited to:

• the timeline and costs of our pivotal Phase 3 clinical trial for B-VEC;

• the timeline and costs of our OLE study for Vyjuvek;

• the progress, timing and costs of our ongoing Phase 1/2 clinical trials for KB105;

• the progress, results and costs of our Phase 1 clinical trials for KB301;

• the progress, timing, and costs of manufacturing of B-VEC for our pivotal Phase 3 clinical trials;

• the progress, timing, and costs of manufacturing of Vyjuvek;

• the continued development and the filing on an IND application for future product candidates;

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If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of our product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves.

Contractual Obligations

Operating Leases

Operating lease payments represent the Company's commitments for future minimum rent made under non-cancelable leases for our corporate headquarters in Pittsburgh, PA, office location in Boston, Massachusetts, and for the ground lease associated with our second cGMP manufacturing facility, ASTRA.

The total future payments for our operating lease obligations at December 31, 2021 are $18.2 million, of which $1.4 million is due in the next twelve months and the remaining payments are due over the terms of the respective leases.

For additional details regarding our leases, see Note 6 to our consolidated financial statements included in this Annual Report on Form 10-K.

Clinical Supply and Product Manufacturing Agreements

The Company enters into various agreements in the normal course of business with Contract Research Organizations ("CROs"), Contract Manufacturing Organizations ("CMOs") and other third parties for preclinical research studies, clinical trials and testing and manufacturing services.

The Company is obligated to make milestone payments under certain of these agreements.

The estimated remaining commitment as of December 31, 2021 under these agreements is approximately $3.0 million, all of which is expected to be due in the next twelve months.

Commercial Preparedness Agreements

The Company has contracted with various third parties to facilitate, coordinate and perform agreed upon commercial preparedness and market research activities relating to our lead product candidate, Vyjuvek.

These contracts typically call for the payment of fees for services upon the achievement of certain milestones.

The estimated remaining commitment as of December 31, 2021 is $2.4 million, all of which is expected to be due in the next twelve months.

ASTRA Contractual Obligations

The Company has contracted with various third parties to construct our second cGMP facility, ASTRA.

Additionally, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages.

These contracts typically call for the payment of fees for services or materials upon the achievement of certain milestones.

The estimated remaining commitment as of December 31, 2021 is $24.7 million, all of which is expected to be due in the next twelve months.

The following table summarizes our sources and uses of cash (in thousands):

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Operating Activities

Net cash used in operating activities for the year December 31, 2020 was $26.1 million and consisted primarily of a net loss of $32.2 million adjusted for non-cash items of $5.2 million primarily made up of depreciation and amortization of $1.9 million and stock-based compensation expense of $3.3 million, and cash used by decreases in net operating liabilities of approximately $928 thousand.

Net cash used in operating activities for the year ended December 31, 2019 was $18.7 million and consisted primarily of a net loss of $19.1 million adjusted for non-cash items of depreciation of $748 thousand, stock-based compensation expense of $1.2 million, loss on disposals of fixed assets of $67 thousand, amortization of right-of-use assets of $226 thousand, and cash used by decreases in net operating assets and liabilities of $1.9 million.

Net cash used in operating activities for the year December 31, 2021 was $47.9 million and consisted primarily of a net loss of $69.6 million adjusted for non-cash items of $18.1 million made up of depreciation and amortization of $2.8 million and stock-based compensation expense of $15.3 million, build to suit interest expense of $1.5 million, and cash used by decreases in net operating liabilities of approximately $2.1 million.

Net cash used in operating activities for the year ended December 31, 2020 was $26.1 million and consisted primarily of a net loss of $32.2 million adjusted for non-cash items of $5.2 million primarily made up of depreciation and amortization of $1.9 million and stock-based compensation expense of $3.3 million, and cash used by decreases in net operating liabilities of approximately $928 thousand.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2020 was approximately $11.2 million and consisted primarily of purchases of $3.2 million of short-term available-for-sale investment securities, and expenditures of $14.8 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $6.9 million from maturities of short-term investments.

Net cash used in investing activities for the year ended December 31, 2019 was $5.0 million and consisted primarily of purchases of $8.6 million of short-term available-for-sale investment securities, proceeds of $10.5 million from maturities of short-term investments, purchases of $497 thousand of long-term investments, expenditures of $6.4 million for the build-out of our GMP facility and purchases of computer and laboratory equipment.

Net cash used in investing activities for the year ended December 31, 2021 was approximately $226.8 million and consisted primarily of purchases of $190.5 million of available-for-sale investment securities, and expenditures of $68.3 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $32.0 million from maturities of investments.

Net cash used in investing activities for the year ended December 31, 2020 was $11.2 million and consisted primarily of purchases of $3.2 million of short-term available-for-sale investment securities, and expenditures of $14.8 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $6.9 million from maturities of short-term investments.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2020 was $118.0 million and was primarily from proceeds from our public offering on May 21, 2020 of 2,275,000 shares of our common stock to the public at $55.00 per share.

Net proceeds to the Company from the offering were $117.2 million after deducting underwriting discounts and commissions of approximately $7.5 million and other offering expenses of approximately $463 thousand.

Net cash provided by financing activities for the year ended December 31, 2019 was $107.5 million and was primarily from net proceeds of $107.1 million after underwriter discounts and other offering expenses payable by the Company from a follow-on public offering of 2,853,946 shares of common stock at a price of $40.00 per share, which includes the sale of 353,946 shares of the Company’s common stock pursuant to the underwriters’ exercise of their option to purchase additional shares.

Net cash provided by financing activities for the year ended December 31, 2021 was $347.7 million and was primarily from proceeds from follow-on public offerings of 2,211,538 shares of its common stock, including 288,461 shares purchased by the underwriters, at $65.00 per share and 2,866,667 shares of its common stock, including 200,000 shares purchased by the underwriters, at $75.00 per share.

Net proceeds to the Company from the offerings were $336.8 million after deducting underwriting discounts and commissions of approximately $21.5 million, and other offering expenses payable by the Company of $425 thousand.

Net proceeds to the Company from the offering were $117.2 million after deducting underwriting and commissions of approximately $7.5 million and other offering expenses of approximately $463 thousand.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.

Contractual Obligations

The following table summarizes our outstanding contractual obligations as of payment due date by period at December 31, 2020 (in thousands):

Total Less than

4-5 More Than

Future minimum operating lease payments (1)(2)(3)

$ 23,525 $ 1,430 $ 2,956 $ 3,075 $ 16,064

Clinical supply and product manufacturing agreement obligations $ 3,631 $ 3,631 $ — $ — $ —

Other contractual obligations $ 2,736 $ 2,736 $ — $ — $ —

(1) We lease approximately 29,000 square feet of office and laboratory space at 2100 Wharton St., Suite 701, Pittsburgh, Pennsylvania.

The lease expires February 2027.

(2) On December 26, 2019, we entered into a lease agreement for our second commercial gene therapy facility in the Pittsburgh, Pennsylvania area ("ASTRA lease").

The 150,000 square foot facility is under construction and is expected to be completed and validated in 2022.

The lease will commence when the space is delivered by Landlord as substantially complete and available for access, which is anticipated to be in 1H 2021, and has an initial term that expires on October 31, 2035.

The ASTRA lease contains an option ("Purchase Option") to purchase the building, related improvements and take corresponding assignment of the Landlord's rights under its existing Ground Lease (the "Ground Lease").

On October 15, 2020, the Company gave the Landlord notice

of its intent to purchase ASTRA subject to the parties entering into a commercially reasonable purchase and sale agreement.

(3) On October 5, 2020, the Company became the accounting owner of the Ground Lease due to obtaining control over ASTRA and recorded the applicable right-of-use asset and corresponding lease liability as of October 5, 2020.

The lease expires in April 2071.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820) (“ASU 2018-13”) which removes, modifies and adds disclosure requirements on fair value measurements.

ASU 2018-13 removes disclosure requirements for transfers between Level 1 and Level 2 measurements and valuation processes for Level 3 measurements but adds new disclosure requirements including changes in unrealized gains/losses in other comprehensive income related to recurring Level 3 measurements.

The amended guidance was effective for us commencing in the first quarter of 2020.

Certain aspects may be applied prospectively while other aspects may be applied retrospectively upon the effective date.

The adoption of the guidance resulted in us disclosing the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of December 31, 2020 and 2019.

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs ("ASU 2020-08") to provide further clarification and update the previously issued guidance in ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20:

Premium Amortization on Purchased Callable Debt Securities) ("ASU 2017-08").

ASU 2017-08 shortened the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date.

ASU 2020-08 requires that at each reporting period, to the extent that the amortized cost of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess premium shall be amortized to the next call date.

The new standard was effective beginning January 1, 2021 and should be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities.

The adoption of ASU 2020-08 did not have a material impact on the Company's financial position or results of operations upon adoption.

Qualitative and Quantitative Disclosures About Market Risk

We had cash, cash equivalents and short-term investments of approximately $271.3 million, which consist primarily of money market funds, bank deposits and certificates of deposit.

We had cash, cash equivalents and short-term investments of approximately $438.1 million as of December 31, 2021, which consist primarily of money market funds, certificates of deposit, commercial paper, corporate bonds, and government agency securities.

The investments in these financial instruments are made in accordance with an investment policy which specifies the categories, allocations and ratings of securities we may consider for investment.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis